Bure Valley Group is an investment introducer platform which links successful investors with exciting, innovative UK startups seeking funding. This content is for information purposes only and should not be taken as financial or investment advice.
The world currently boasts 1,066 “unicorns” – startups valued at $1bn or more. Presently, there are 42 in the UK, with 14 having exited the private market. These companies are, naturally, highly sought after by investors. After all, if you can identify a unicorn in its early stages – before it achieves exponential growth – then huge returns become possible. Yet is there a reliable way to find unicorns early on? Is it all just a matter of luck, when choosing startup investments?
Given the rarity of unicorns, the task is certainly formidable for investors. However, there are steps you can take to maximise your chance of including one – or more – in a startup portfolio. Below, our team at Bure Valley Group shares insights from our own investor network, to help you in this quest. We hope you find this content useful. To find out more about our EIS and other investment opportunities, visit our portfolio page here. To enquire regarding our latest projects and funding (for investors and founders, respectively), you can reach us via:
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Hunt for founders
When it comes to startup success, much comes down to factors like the business model, market size and competition. Ultimately, however, the deciding factor is the team and, particularly, its founders. Yet analysing startup teams is very difficult.
After all, how do you “measure” a founder’s track record when there is little to speak of? How do you accurately gauge his/her character traits – like intelligence, willingness to hear constructive criticism, perseverance and strategic aptitude? Fortunately, there are some things you can look out for in a founder, as an investor, to gain a clearer picture of the team.
A good starting point is to talk to the founder and see if they are humble. Does he/she admit to not knowing important things? Do they seek wisdom for more experienced people around them? A willingness to learn and adapt will be key to navigating the difficult startup road ahead.
Leadership skills are also important. Can they discipline a staff member appropriately, if they are not performing? Does the team naturally look up to the founder(s), or seem to begrudge them? When talking to employees, is there a sense of purpose – i.e. a shared vision of what they are looking to accomplish, and the way to do it?
Team buy-in is a very positive sign.
Use pitch decks, wisely
As an angel investor, you will see more pitch decks than you dare to count. Finding a unicorn from these is about as likely as finding a magical unicorn in the woods. Yet pitch decks can help you narrow down the contenders. Here are some ideas to help you refine your list:
- Simplicity. Today’s unicorns typically offer a simple solution to a big problem. This should come across in the pitch deck. Be especially careful with startups dealing with complex, software-based solutions which are hard to understand. Here, the message may “travel” quite far within a specific market which knows the jargon. However, for a broad market, it may be too much to grasp.
- Market expansion. You can find great startups which seek to “disrupt” a market, stealing share from incumbents. Nonetheless, unicorns often emerge from startups which sought to create a new customer base. In the technology space, for instance, this might involve creating a product which provides a cheaper, simpler alternative to the prevailing model which involves a large up-front cost.
Catalysts and traction
For many unicorns, their success can be partly attributed to offering a product (or solution) at a unique time. Yet this is more than just “getting lucky”. Rather, a startup captures a “mood” in the wider market – or exploits a timely set of events, attitudes and circumstances – to propel them towards success. Uber, for instance, took advantage of innovations in geo-location technology (as well as the proliferation of smartphones) to explode across the globe. Shopify is another interesting case; riding the wave of “Web 2.0” (i.e. cheap template websites) so SMEs could affordably create a digital presence.
Traction is also important. Whilst the business model is important, many unicorn founders do not have a robust view on this. Rather, their focus is on gaining momentum in offering solutions to a wide group of people. Pinterest is a useful example here. Prior to its US$40m valuation in 2011, Bessemer’s investment memo did not outline a clear business model. Rather, demonstrable growth in activity on the platform (e.g. pin volumes) showed that there was a strong foundation to build monetisation.
This suggests that the next unicorns will also put understanding the customer front and centre, offering them meaningful solutions (rather than getting the business model “right from the very beginning”; indeed, it might change!). If traction can be leveraged to grow a community amongst the customer/user base, moreover, then this provides a powerful drive to continually improve the product or service. A unicorn will also be adept at building a strong customer database, using insights to make further enhancements and improve product defensiveness.
Interested in finding out more about the exciting startup projects we have on offer to investors here at Bure Valley Group? Get in touch today to start a conversation with our team and discuss some of the great investment memorandums we have available here:
+44 160 334 0827